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Aggregate v. Entity•Subchapter K sometimes treats partnerships as entities, sometimes as aggregates of their partners. THIS IS VIEWED AS AN IMPORTANT DISTINCTION TO BEAR IN MIND.•Saying a partnership is an aggregate means that what happens to the partnership is treated as happening to each partner•Saying it is an entity means that we act as if the partnership is a single taxpayer2
Aggregate v. Entity, cont’d3
Partnership is a “passthrough” cont’d•Of course, if the partnership has employees, it will e.g. pay business part of Social Security taxes•Each partner includes part of what the partnership recognized on its own return—see Form K-1.•CAVEAT: By the end of the semester, some of today’s examples may have more complicated answers–EXAMPLE 1.
AB partnership. A contributes $60 to AB; B contributes $40. AB has $100 of ordinary income, $50 of capital gain, $20 of investment interest deduction. How much of each of those items is allocated to B?5